Goldman report: last chance for perp walks?

It’s never too late to cross your fingers and hope for a financial crisis perp walk.

That is the message behind the crusading report released Wednesday by Sens. Carl Levin (right), D-Mich., and Tom Coburn, R-Okla. It is a numbing, 635-page dose of the greed, fear, self-importance and self-dealing that enriched Wall Street bankers during the housing bubble and will impoverish the rest of us for years to come.

This isn’t the first time we are seeing Wall Street’s many warts up close. But Levin made clear he has bigger hopes for this examination: he sees the report as perhaps one last chance for U.S. prosecutors to finally reel in the big fish that has eluded them since the markets started melting down in 2007.

Levin said he believes execs at Goldman (GS)crossed the line in trying to soft-pedal the extent of the firm’s bets against the staggering U.S. housing market as the credit bubble collapsed in 2006 and 2007.

The firm privately referred to these multibillion-dollar positions as “the big short,” the report indicates – showing, in Levin’s view, that Goldman did indeed have the systematic wager against U.S. housing that it has long denied. He said he was referring the case to the Justice Department and the Securities and Exchange Commission.

“In my judgment, Goldman clearly misled their clients and they misled Congress,” Levin told reporters on a conference call Wednesday morning before the report was released.

Goldman, of course, doesn’t agree. It notes that it took on the big short in part to get out of large, wrongheaded bets that the housing market would keep rising. The poor results of its mortgage unit during the shorting period prove this, the firm contends.

The testimony we gave was truthful and accurate and this is confirmed by the Subcommittee’s own report. The report references testimony from Goldman Sachs witnesses who repeatedly and consistently acknowledged that we were intermittently net short during 2007. We did not have a massive net short position because our short positions were largely offset by our long positions, and our financial results clearly demonstrate this point.

Splitting hairs over the meaning of the phrase “net short” is not a good way to keep a jury awake, which is why it is hard to see what in this report, nauseating as its findings are, would rise to the level of a prosecutable offense. Is it a crime that one Goldman exec refers to the day his headed-for-zero collateralized debt obligation got priced as “a day that will live in infamy”? It seems not.

Beyond that, the allegations are very much along the lines of the ones the SEC made against Goldman in the Abacus case last year. That one yielded the SEC a $550 million settlement and a Goldman admission that mistakes were made. But the investment bank also trumpeted at the time that the SEC said it had reviewed other, similar Goldman deals – presumably such as the Timberwolf and Hudson Mezzanine deals that this report focuses on – and had decided not to bring charges.

And it hardly bears repeating that there are cases that look much stronger to the naked eye – the one against Dick Fuld over Lehman Brothers’ books, which certainly didn’t match the company’s financial condition in its dying days, comes to mind – that the SEC and the Justice Department haven’t bothered to pick up, let alone run with.

The ambition of the Levin-Coburn report is laudable, and Levin’s frustration with the bankers is wholly understandable. But no one should hold their breath waiting for the guys* at Goldman to be indicted.

*Originally I wrote “ham sandwiches” in a lame effort to reference the saying that a grand jury could indict a ham sandwich. Hopefully it makes more sense now.